Why a CVS-Aetna merger could benefit consumers – tech2.org

Why a CVS-Aetna merger could benefit consumers


There are reasons for consumers to feel optimistic about CVS buying Aetna for $ 69 billion on Sunday.

It is one of the largest healthcare mergers in history and, in general, consolidation in medical care has not been good for Americans.

But by disrupting the pharmaceutical benefit management market and by more closely aligning the management of drug benefits and other types of benefits in an organization, CVS could be acting in a way that will ultimately benefit consumers. .

You probably know CVS as a retail pharmacy chain: it handles almost 10,000 pharmacies. But over the years, it has diversified. Now it has clinics without an appointment, even in Target stores. And it administers one of the largest specialized pharmacies, which dispenses high-priced medicines that require special handling.

CVS manages almost 10,000 pharmacies. Credit Andrew Kelly / Reuters

In a major move a decade ago that paved the way for more recent developments, CVS bought most of Caremark's shares for nearly $ 27 billion to enter the business of administration of pharmacy benefits.

Pharmacy benefit managers are companies that help insurers design and manage their drug benefits, including serving as intermediaries to negotiate prices between insurers and drug manufacturers.

Many experts in the health industry believe that pharmaceutical benefit managers increase their own benefits. This is because they make money through opaque refunds that are linked to drug prices (so their earnings increase as prices do). Competition among pharmaceutical benefit management companies could reduce these profits, but it is a highly concentrated market dominated by a few companies, CVS among the largest.

But recent CVS measures can shake up a panorama of pharmacy benefits that is already changing. In October, the insurer Anthem announced its intention to separate from the pharmaceutical benefits management firm Express Scripts. Instead, it will partner with CVS to develop its own pharmacy administration business.

Anthem would not be the first insurer to renounce the external administration of pharmacy benefits and badume the role internally. The insurer UnitedHealth Group also runs a leading pharmacy benefit management business, OptumRx. And the purchase by CVS of Aetna would also eliminate it as an intermediary between that insurer and the pharmaceutical companies.

"Although it is still early, the actions of Anthem and Aetna have the feeling of the beginning of the end of the independent pharmacy business benefits manager," said Craig Garthwaite, health economist at Kellogg School of Management at Northwestern University. These insurers, and UnitedHealth Group, have come to the conclusion that the outsourcing of pharmaceutical benefit management may not meet their interests.

This elimination of for-profit intermediaries could be beneficial for short-term consumers if it leads to lower prices. "In the long term, it could be harder for new insurers to enter the market because they can not negotiate lower drug prices than large companies," Mr. Garthwaite said. "This could lead to greater concentration in the medical insurance market." That could harm future consumers, although not predictably.

The CVS-Aetna agreement would be just another of the many recent mergers in business lines in health care. Insurers are buying or partnering with health service providers. Health systems offer insurance. The hospitals are employing doctors. Even Amazon is entering the pharmacy business in some states. This may be part of CVS's motivation to buy Aetna – defensive maneuvers to maintain access to a large customer base that might otherwise begin to fill prescriptions for medications online.

Typically, mergers in the sector have led to higher prices and no better results. But a CVS-Aetna merger could be different because its business lines complement each other. The most important overlap is in the administration of Medicare drug benefits: both companies offer independent Medicare prescription drug plans.

But there is a lot of competition in the Medicare drug plan market, so this overlap may not be a leading area of ​​concern.

The CVS-Aetna merger is primarily about a supplier and its customers joining forces, what economists call a vertical merger. This type of merger can improve a company's ability to coordinate between interconnected business lines.

In this case, CVS-Aetna could be administered more effectively to certain patients with chronic conditions (those insured by Aetna), which reduces costs. Imagine that Aetna could take advantage of CVS pharmacies and clinics to help patients, who require medications to avoid hospitalizations, to continue with their medication regimen. That could save money for the merged organization. It could also translate into better care and lower premiums, although at this time there is no guarantee at this stage.

A source of optimism: research shows that coordinating pharmacy and health benefits has value because it eliminates the perverse incentives that arise when non-financial benefits are divided across organizations. When pharmacy benefits are administered by a company that is not committed to the cost of other care, such as hospitalization, it does not have such a strong incentive to increase access to medications that reduce other types of health care use. That could end up costing more of everything.

Therefore, there is reason to believe that a combined CVS-Aetna could find ways to reduce costs and represent an instance in which consumers move forward after the consolidation of medical care.

Austin Frakt is director of the Joint Evidence Policy Resource Center at the VA Boston Healthcare System; Associate Professor, School of Public Health, Boston University; and badociate badociate professor with Harvard T.H. Chan School of Public Health. He blogs at The Incidental Economist, and you can follow him on Twitter at

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